"A confluence of news is playing out simultaneously. The market has seen bit of support at around 5,700-5,800 levels and if none of these improve then this support could easily break," he said in an interview to CNBC-TV18.

Continuing his bearish tone, Shah added that anemic earning seasons would add to market's pain and he doesn't see earnings growth touching double digit mark in April. However, there is a possibility of market moving higher if crude price corrects meaningfully from current levels.

On specific stocks, Shah expects IT and oil and gas stocks to outperform going ahead, but cautions of downside risk to auto stocks on sluggish demand. Midcap stocks have become attractive post the recent carnage. "I do not see midcaps underperforming from hereon," he elaborated.

Below is the edited transcript of Shah's interview to CNBC-TV18.

Q: The market has not looked great in the last few weeks. Is there more downside here or would you start buying?

A: Perhaps the market is confronted with the most challenging situation over the last six months. We have a pretty vicious confluence of all factors put together. Be it some kind of global markets peaking or probably a shift away from risk-on to risk-off. Locally too, we have seen a pretty challenging political turmoil, a hawkish Reserve Bank of India (RBI) and the mother of all realities, which is an anemic earning season.

Come April, we are going to be confronted with an earning season where earnings growth will get back into a double digit mode. So, I clearly think that we are at a situation where there is a confluence of all these factors playing out simultaneously. If there is no improvement in any one of these factors, it is quite possible that the current levels where the market has found a fair bit of support, around 5700-5800 levels, they could easily break.

Q: If your apprehensions come true, what kind of levels could the Nifty sink to in this turbulent phase?

A: For the moment, the current levels should hold on. However, over the next two-three months, if any of these factors materialise, then we could probably see a level which is even 10 percent lower from the current levels. It could probably be in a band of 8-10 percent lower from here. That would be the worst case situation and clearly, at those levels, the valuations from medium to long term perspective would become really very attractive.

Q: What would 10 percent downside amount to for the midcap space? Would you use the same buying opportunity theory for the midcaps? Or does that become an avoid because of the current context?

A: I believe that the midcaps have become a bit attractive post the correction. Clearly, the correction has been much more severe in the midcap space. From the peaks, the midcap index has corrected by about atleast 15 percent whereas the large cap space has hardly corrected by even 5 percent. So, over the next two-three months, we probably might see an 8-10 percent correction in the large cap space.

However, I do not see a corresponding correction of that magnitude in the midcap space. In a worst case situation, maybe the midcaps too could correct by 5-10 percent but going forward, I do not expect midcaps to underperform. In January, when the market had peaked, at that point of time the midcap index was no longer trading at a discount to the largecap index. The midcap index was trading at parity to the largecap index in terms of PE multiples. We are now beginning to see the discount resurface. It is probably now time for the large caps to start correcting in a more meaningful manner. So, I clearly believe that over the next two-three months, we are going to be presented with a significant buying opportunity in the midcap space.